Guam Economy Growing, Vulnerable To Global Downturn

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Bank of Guam economist: Tourism should expand in next few years

By Gaynor Dumat-ol Daleno

HAGÅTÑA, Guam (Pacific Daily News, April 10, 2015) – Guam's economy is growing, thanks in part to the rebound in visitor arrivals, but the countries where most of the island's tourists come from face challenges, a local economist said yesterday.

"Tourism has recovered in Guam, and we can hope for industry expansion in the next few years ... Things seem to be moving a little faster now," said Joseph Bradley, chief economist, senior vice president and business continuity officer at the Bank of Guam.

"Japan's economy is faltering, Korea is slowing and China's growth rate is off," Bradley's presentation states.

He made the presentation on local, U.S. and international events and indicators that affect the island's economy, consumers, businesses and government. The presentation was made as a service to the bank's customers.

U.S. economy slowing

There are signs the U.S. economy may be heading toward a depression, Bradley said.

The U.S. housing market is in a bubble that could burst soon, full-time jobs aren't growing at a faster clip and consumer spending has slowed, he said.

In contrast, Guam's housing market has shown increased sales over the past year, after going through a meltdown more than a decade ago, he said. Many Guam houses went into foreclosure during that time.

Guam's housing market and island consumers' costs of borrowing, such as for home loans and car loans, are affected by the Federal Reserve's decision to keep interest rates low or raise them.

Many economists in the U.S. mainland agree that the Federal Reserve may raise interest rates as soon as in June, but Bradley said he disagrees.

With the U.S. economy showing not-so-rosy signs, the Federal Reserve would be inclined to keep interest rates low, he said. Consumers would have the confidence to spend and businesses would be able to access capital more affordably for their business to sustain or create jobs if interest rates are low.

Buildup not a key topic

Bradley's presentation didn't spend much time on forecasting for the second main leg of Guam's economy -- defense spending.

"There's always the military buildup," Bradley said, as a possible boost to the local economy, but didn't elaborate on how he thinks the military expansion would affect jobs creation, business opportunities and quality of life on Guam.

Until the time lines are certain and new information comes up, Bradley said he would hold off on buildup-related forecasts.

The military buildup, which is estimated to cost more than $8 billion, proposes the construction of a Marine base on Guam and live-fire training ranges here, as well as on Tinian and Pagan islands in the Northern Marianas.

Gov. Eddie Calvo said recently he expects the Guam part of the buildup to get the green light, through the release of the Record of Decision, by the end of June. Before the release of that document, the final supplemental environmental impact statement is expected to come first. Deputy Secretary of Defense Robert Work said in August last year that the final supplemental environmental impact statement for the Guam buildup would be released during the first quarter of this year. That document hasn't been publicly released yet.


Bradley said visitor arrivals for this year might increase slightly to close to 1.4 million, from more than 1.3 million last year.

The Guam Visitors Bureau aims to welcome 2 million tourists a year starting in 2020, but that means building about 1,600 additional rooms.

Bradley said Japan remains the main source of tourists for Guam, but its market share is smaller. Japanese tourists now make up 57 percent of Guam's visitor arrivals, a sharp drop from 80 percent about a decade ago.

Japan's consumer spending still remains slow, and for every 10-percent dip in consumer spending in Japan, that translates to a 15-percent drop in Japanese expenditures on Guam, Bradley said.

Arrivals from South Korea and China have helped to offset the decline in Japan arrivals.

Bradley said, however, that the South Korean and Chinese economies are showing signs of trouble, too.

The South Korean economy has become increasingly important to Guam in the past four years, Bradley stated.

As Japanese arrivals have fallen from more than 80 percent 10 years ago to less than 60 percent in February, Korean arrivals have surged from less than 10 percent to more than 25 percent, he said.

South Korea's industrial production has grown very slowly during the past three years -- at a rate of 1 percent annually, he said.

China's growth has slowed further to 7.3 percent during the last two quarters, Bradley said. China's economy grew by 10 percent in 2010, dipped 9.3 percent in 2011 and 7.7 percent in 2012, the World Bank stated.

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